With 80-90% of payment projects now involving modernisation efforts, financial institutions must carefully navigate this complex transformation to avoid costly pitfalls and ensure success, write Krishanu De, Global Head of Payments, Risk & Compliance Industry Solutions at Cognizant and Shreegopal Ramakrishnan, Head of Cards and Payments Consulting at Cognizant in the UK & Ireland.
Modernising the payment infrastructure of a Payment processing financial institution is akin to performing open-heart surgery on a patient who must remain active throughout the procedure. The complexity is enormous – financial institutions must transform critical systems while ensuring uninterrupted service for customers who expect Netflix-like experiences from their payments providers.
From our extensive work with clients across the financial services landscape, Cognizant has observed that a staggering 80-90% of payment projects now involve modernisation efforts. Institutions across the spectrum – from traditional banks to payments firms – recognise that their ability to compete hinges on overhauling legacy infrastructure, and we understand these pain points intimately.
The modernisation imperative
The pressure on traditional financial institutions has intensified dramatically. Challenger banks like Monzo – now boasting 12 million accounts – continue to capture market share with superior customer experiences. Even established players struggle to keep pace. A major UK bank started a transformation project that was originally planned to take two years but extended to six years due to its complexity and third-party dependencies. Despite this extension, they remain behind modern payment providers.
This competitive intensity exists across all payment domains. Issuers must modernise card management systems to support alternative payment methods – from digital wallets to social payments. Acquirers require modern switches and merchant acquiring platforms to handle evolving payment types. Networks like Visa and Mastercard must continuously upgrade their infrastructure to combat fraud and enable innovative services like cross border A2A payments.
The regulatory landscape adds further complexity. New standards like ISO 20022 offer substantial benefits but demand significant infrastructure changes.
Modernisation is not a one-time activity. It requires continuous investment and evolution to remain competitive in today's rapidly changing payment ecosystem.
The payments modernisation scene is experiencing tremendous innovation. New cloud-based processors are challenging established players in every segment:
- Acquiring space: Adyen and Stripe have revolutionised the market with API-first, developer-friendly platforms.
- Issuing capability: Providers like Marqeta, Episode Six, Enfuce offer API-driven card issuing solutions that enable rapid product innovation.
- Payment hubs: Some of the large financial institutions build proprietary robust payment hubs, while others adopt product-based solutions from payment hub product providers like ACI Worldwide, Finastra, FIS, Temenos etc.
- Cross-border payments: Blockchain-based solutions from companies like Ripple are challenging traditional correspondent banking model.
- Real-time payments: Central banks worldwide are implementing modern infrastructure for instant settlement
Even SWIFT, with its network of 11,000 participating institutions, is modernising – and has launched cloud-based solutions to maintain relevance in an increasingly competitive landscape.
Meanwhile, embedded payments continue to gain traction across industries. Software providers (ISVs) in healthcare, retail and hospitality are integrating payment capabilities directly into their platforms – a trend that traditional acquirers can only participate in with modernised infrastructure.
Five transformation pitfalls to avoid
Many financial institutions have learned painful modernisation lessons. Here are a handful of pitfalls to beware:
- Underestimating project scope and complexity
Modernising payment infrastructure often expands beyond initial estimates, touching numerous connected systems. What begins as a switch upgrade can cascade into a complete ecosystem overhaul. Conduct a thorough dependency analysis and scoping before beginning any modernisation effort. Consider an agile approach instead of a waterfall approach for flexibility in integrating changes and innovations in our modernisation journey. - Taking the "big bang" approach
Attempting to modernise everything at once creates unacceptable risk. Instead, adopt an incremental approach with clear business value delivered at each stage. This reduces risk and provides opportunities to adjust strategy based on market changes. - Failing to distinguish core from non-core capabilities
Not everything needs to be built in-house. Determine which capabilities provide a genuine competitive advantage (core) versus those that can be acquired through partnerships or products (non-core). This focus streamlines modernisation and reduces time-to-market. - Neglecting market context
By the time multi-year transformation programmes complete, market conditions often change significantly. Design flexible architecture that can adapt to evolving requirements rather than solving only for today's challenges.
- Leadership discontinuity
When executive sponsors change, modernisation programmes often derail. Establish strong governance to maintain continuity despite leadership changes
The most successful modernisation efforts balance technical excellence with business pragmatism – delivering value incrementally while maintaining a clear vision of the future state.
AI accelerating the transformation journey
Artificial intelligence presents significant opportunities to enhance payment modernisation efforts. AI-powered tools transform how institutions approach complex modernisation projects by automating and improving critical processes.
Working with Microsoft, Cognizant leverages Copilot capabilities to accelerate modernisation initiatives dramatically. These AI tools extract business rules from legacy systems, automate code generation, and enhance testing, significantly reducing project timelines while improving quality.
When examining legacy systems, AI excels at identifying and documenting rules embedded within decades-old code that would otherwise require painstaking manual analysis. The testing phase benefits similarly, with AI enhancing test generation and execution, reducing time-to-market while improving quality outcomes.
While AI offers tremendous potential to accelerate modernisation efforts, the technology is still evolving. The most successful institutions balance AI innovation with proven transformation approaches.
The path to successful transformation
Given these challenges, how should financial institutions approach modernisation? The most successful approaches include:
Conduct an honest capability assessment
Before beginning modernisation, thoroughly evaluate your current state – including people, processes, technology and governance. Identify strengths to leverage and weaknesses to address.
Prioritise customer journeys
Focus modernisation efforts on the customer journeys with the highest business impact. This customer-centric approach ensures investments deliver meaningful improvements rather than technical achievements alone.
Create architectural flexibility
Design systems that can evolve as requirements change. Microservices architectures, API-first approaches and cloud-native designs provide the adaptability needed for long-term success.
Establish strong governance
Implement rigorous governance to maintain direction despite inevitable leadership and market changes. This includes clear decision authorities, transparent metrics and regular strategic reviews.
The success of payments modernisation ultimately depends on transforming not just technology, but also people, processes and governance – creating a holistic capability that can evolve with changing requirements.
How Cognizant can help
Cognizant brings unique expertise to payment modernisation, supporting numerous successful transformations across issuers, acquirers, networks and processors worldwide. Our strength lies in combining deep payment domain knowledge with technical excellence, functioning as the expert heart surgeon for your modernisation journey.
Our approach begins with thoughtful strategy development that balances ambitious goals with realistic implementation plans. Our architecture specialists design flexible systems delivering immediate value while enabling long-term evolution, with each phase providing tangible business benefits.
For institutions pursuing product-based approaches, we offer objective assessment of vendor capabilities, cutting through marketing promises to identify solutions truly aligned with your requirements.
In collaboration with Microsoft, we bring advanced cloud, data, and AI technologies to accelerate our clients' modernization initiatives. This strategic partnership guarantees that we provide the appropriate capabilities and platforms necessary to achieve their modernization goals.
Most importantly, we understand when and how to modernise – and when an alternative approach might better serve business objectives. Like an expert heart surgeon, we focus on interventions that deliver meaningful value across your payment ecosystem.
The future of payments modernisation
The payments landscape continues to evolve rapidly, with successful institutions finding the balance between technical innovation and business value.
For more insights on navigating this complex landscape, explore Cognizant's Future of Payments resource centre at cognizant.com/uk/en/campaigns/future-of-payments
